Whole Life Insurance and its Benefits - 360Naija
Connect with us


Whole Life Insurance and its Benefits



In this article, we will bring you a brief history of the type of insurance that is fit for the rest of your life, the special consideration about this insurance, the meaning of the insurance, the advantages of insurance, the uses of insurance, keep reading…

Whole life insurance, also known as traditional life insurance, provides permanent death benefit coverage for the insured’s life. In addition to paying a death benefit, whole life insurance also contains a savings component in which cash value may accumulate. Interest accrues at a fixed rate and on a tax-deferred basis.

Whole life insurance policies are one type of permanent life insurance. Universal life indexed universal life, and variable universal life is others. Whole life insurance is the original life insurance policy, but whole life does not equal permanent life insurance as there are many types of permanent life.

History of Whole Life Insurance:

From the end of World War II through the late 1960s, whole life insurance was the most popular insurance product. Policies secured income for families in the event of the insured’s untimely death and helped subsidize retirement planning. After the passing of the Tax Equity and Fiscal Responsibility Act (TEFRA) in 1982, many banks and insurance companies became more interest-sensitive.

Individuals weighed the benefits of purchasing whole life insurance against investing in the stock market, where annualized return rates for the S&P 500 were, adjusted for inflation, 14.76% in 1982 and 17.27% in 1983.

Most individuals then began investing in the stock market and term life insurance rather than in whole life insurance.


What is Whole Life Insurance?

Whole life insurance, or whole of life assurance, sometimes called “straight life” or “ordinary life”, is a life insurance policy that is guaranteed to remain in force for the insured’s entire lifetime, provided required premiums are paid, or to the maturity date.

Understanding Whole Life Insurance:

Whole life insurance guarantees payment of a death benefit to beneficiaries in exchange for level, regularly-due premium payments. The policy includes a savings portion, called the “cash value,” alongside the death benefit. In the savings component, interest may accumulate on a tax-deferred basis. Growing cash value is an essential component of whole life insurance.

To build cash value, a policyholder can remit payments more than the scheduled premium (known as paid-up additions or PUA). Policy dividends can also be reinvested into the cash value and earn interest. The cash value offers a living benefit to the policyholder. Over time, the dividends and interest earned on the policy’s cash value will often provide a positive return to investors, growing more significantly than the total premiums paid into the policy. In essence, it serves as a source of equity.

The policyholder requests a withdrawal of funds or a loan to access cash reserves. Interest is charged on loans with rates varying per insurer. Also, the owner may withdraw funds tax-free up to the value of the total premiums paid. Unpaid loans will reduce the death benefit by the outstanding amount.

Withdrawals and unpaid policy loans reduce the cash value of the policy. Depending on the policy type and the size of its remaining cash value, a withdrawal could moreover chip away at the death benefit or even wipe it out altogether. While some policies are reduced on a dollar-for-dollar basis with each withdrawal, others (such as some traditional whole-life policies) may reduce the death benefit more significantly than what is withdrawn.

Special Considerations:

The death benefit is typically a set amount of the policy contract. Some policies are eligible for dividend payments, and the policyholder may elect to have the dividends purchase additional death benefits, increasing the amount paid at the time of death. Death proceeds are non-taxable to the beneficiary and are, therefore, not part of taxable gross income.

The death benefit can also be affected by specific policy provisions or events. For example, unpaid policy loans, including accrued interest, reduce the death benefit dollar for dollar. Alternatively, many insurers offer voluntary riders—for a fee—that secure or guarantee coverage, including the stated death benefit. For example, two of the most common are the accidental death benefit and waiver of premium riders, which protect the death benefit if the insured becomes disabled or critically ill and cannot remit premiums due.


Many life insurance policies allow the policyholder to designate that the funds from the policy be held in an account and distributed in allotments rather than as a lump sum. Interest earned on the holding account will be taxable and should be reported by the beneficiary. Also, if the insurance policy was sold before the insured’s death, taxes may be assessed on the proceeds from that sale.

As with any permanent policy, it’s essential to thoroughly research all insurers being considered to ensure they’re among the best whole life insurance companies currently operating.

Uses of Whole Life Insurance:

A whole life insurance policy gives individuals and their families financial security against the loss of a breadwinner. For families that rely on a single person’s income, a whole life policy can provide financial security against the sudden loss of a breadwinner.

Whole life insurance is also helpful for businesses as a contingency plan for losing a key employee or partner. If anything occurs, such as a key employee, a whole life policy can offset the loss of their skills or expertise. If the deceased is part owner of the company, a whole-life policy can provide the remaining owners with enough capital to buy out the deceased partner’s share of the business.

Types of Whole Life Insurance:

Two main types of whole life insurance are distinguished by how premiums are priced and how policy risk is allocated.

Single Premium:

This is the most basic type of whole life insurance. The insured pays a fixed premium, which continues to accumulate as cash value and provides coverage for as long as premiums are paid.

Limited Payment:

This type of policy features higher premiums in the early years of a policy, with lower or no premiums in later years.


Modified Premium:

Unlike a limited payment policy, this type of whole-life insurance offers lower premiums early in a policy’s lifetime.
Whole life insurance policies are further distinguished into participating and non-participating plans. With a non-participating policy, any excess of premiums over payouts becomes profit for the insurer. However, the insurer also assumes the risk of losing money.

Whole life insurance policies are further distinguished into participating and non-participating plans. With a non-participating policy, any excess of premiums over payouts becomes profit for the insurer. However, the insurer also assumes the risk of losing money.

With a participating policy, any excess premiums is redistributed to the insured as a dividend. This dividend can then be used to make payments or increase one’s policy limits.

Whole Life Insurance Cash Value:

A cash-value life insurance policy is similar to a retirement savings account because it allows investments to accumulate tax-deferred interest.

Part of each premium payment goes towards the policy’s cash value, which can be withdrawn or borrowed later in life. The cash value of a life insurance policy multiplies when the insured is young, but it grows more slowly as they age due to the higher risks associated with age.

The insured can access their policy’s cash value by borrowing against it or withdrawing money in a partial cash surrender. Surrenders will diminish the final death benefit of their policy. You can also use the cash value to cover your monthly premium payments instead of paying out of pocket.

Advantages of Whole Life Insurance:

The main advantage of whole-life insurance is that it provides lifelong coverage that never expires or needs to be renewed. While term insurance does not pay off if the insured does not die within the predetermined period, a whole life policy offers lifelong protection with a fixed premium. It also accumulates cash value that can be spent on expenses like medical care or retirement.


As an estate plan, whole life insurance can provide extra benefits above a traditional inheritance. In many states, the death benefit is protected against claims by the decedent’s creditors. Moreover, the cash value of a life insurance policy is tax-deferred, and loans against the policy are also tax-advantaged.

The main disadvantage of whole life insurance is that it is expensive. Whole life premiums are significantly higher than those for a term policy and have less flexibility than universal life insurance policies. When choosing a life insurance policy, it is essential to consider the potential returns from investing the same money in other vehicles.

Benefits of Whole Life Policy:

  1. Cover For Life:

The insured will get coverage for his entire life, unlike other life insurance plans that are fixed for a certain period. The other life insurance plans will expire, and it will be expensive to take another one when you want one. In the event you die, a lump sum tax-free amount is paid to the nominee. If you outlive the term, you will not receive any return. For example, if a 25-year-old takes a whole life plan at 25 years, he will receive a lump sum payment at the age of 45, the age at which his 20-year premium payment term will expire. He can use this money for his retirement, and his cover will continue till he turns 100 or tills the date he dies.

  1. Assurance Of Coverage, Periodic Payments, And Tax Benefits:

The survival benefits will be built over time which keeps increasing over time. You will get lifetime coverage and guaranteed level premiums for a limited payment term. The premium is constant throughout the premium payment term. The sum assured is guaranteed, and the bonuses are declared based on performance. Some companies offer survival benefits from the end of the premium payment term till the policy matures. Tax benefits are also available to the insured under Section 80C and Section 10(10D) of the Income Tax Act, 1961.

  1. Serves As A Source Of Cash:

Financial experts believe that a person must keep 6-8 months’ living expenses in the form of liquid assets. It is however difficult to reserve such huge cash while meeting retirement and long-term saving goals. But with a whole-life plan, you can get the cash at the end of the premium payment term.

  1. Loan Options Available On Your Whole Life Plan Policy:

The policy’s surrender value increases over time, and you can borrow against the policy’s surrender value at any time. This is a better alternative to borrowing against home or retirement accounts.

  1. Your Dependents Will Benefit From This Plan:

The return will prove to be an additional financial source for the family. This plan is ideal for estate planning individuals who want to pass on their estate to their legal heir as it helps create wealth.

Frequently Asked Questions:

How Much Does Whole Life Insurance Cost?

On average, whole life insurance policies are significantly more expensive than term life insurance. Research by finder.com found that the average monthly premium for a whole life insurance policy could range from hundreds of dollars a month to over a thousand, depending on factors such as the level of coverage and the age and gender of the insured.

In contrast, premiums for term life insurance average in the tens of dollars for most insured, although they can be higher for those of advanced age and higher policy limits.

What Is Modified Whole Life Insurance?

Modified whole life insurance is permanent life insurance in which premiums increase after a specific period. Usually, after five or 10 years, the premiums increase but remain constant after that. Traditional whole-life insurance premiums, in contrast, remain the same throughout the policy’s life.


What Is the Difference Between Whole Life and Term Life Insurance?

As its name suggests, term life insurance provides a death benefit for a specific term. Unlike a whole life policy, this type of life insurance does not have a saving component. At the end of the term, the policy terminates. Some insurers allow the policyholder to convert their term policy to whole life or renew for a longer term. Whole life insurance is a type of permanent life insurance that provides coverage for the insured’s life. A whole life insurance policyholder can also build cash value in the policy’s savings component.

How Much Is Whole Life Insurance?

The cost of whole-life insurance varies based on factors such as age, occupation, and health history. Older applicants typically have higher rates than younger applicants. Insureds with a stellar health history typically have better rates than those with a history of health challenges.

The face amount of coverage also determines how much a policyholder will pay; the higher the face amount, the higher the premium. Interestingly, certain companies have higher rates than others, independent of the applicant and their risk profile. It’s also worth noting that for the same amount of coverage, whole life insurance is more expensive than term life insurance.


Now that you have gotten your whole life insurance through this article if there is any way you don’t understand or have question(s) to ask, feel free to contact us or drop your comments on our webpage; we are here 24/7 to help you out. Good luck.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *


The US Health Insurance and Its Types



There are two types of health insurance in the US, private and public. Most people use a combination of both. The US public health insurances are Medicare, Medicaid, and the Children’s Health Insurance Program, keep reading… (more…)

Continue Reading